European equity: earning(s) respect

Europe Watch - Chart Story 18 Aug 2026

EUROPEAN EQUITY: EARNING(S) RESPECT Davide Oneglia, Sadeem Al Gaaod

Positive European earnings and revisions have surprised markets. Expectations define surprises. As we argued, beneath the Iran shock, European macro is stronger than it looks, while banks and AI's performance is structural, and Europe's high beta to “good news” is downplayed. With Hormuz still shut, growing risk of panicked ECB response, and politics getting rowdy, the next months won’t be easy for European stocks, but we stay positive on balance, in line with our above-consensus growth outlook.

1/ Since the start of the Iran war, overall European earnings growth has been solid, leading to a 10.7% increase in 12m forward EPS growth since the end of February with positive 8 earnings revision momentum. Crucially, while some sectors have played an important role, median sector earnings have been increasing too, pointing to a healthy broadening out.

2/ A mix of macro and sectoral factors have contributed to this. As we said, the European economy has reacted much better than consensus expected to the fallout from the Iran war. 8 Consensus was quick to price in bad news, implying a big rebound in economic and earnings surprises when decent data hit. This is in keeping with our relatively upbeat view of activity trends in Europe going forward (barring an energy crunch this winter, more below).